Over 15 years of advising nonprofit organizations, I have learned that, sometimes, “good deeds do go punished.” This can be especially true when a private foundation, or those in its management, engage in transactions intended and designed to advance an exempt purpose but in reality constitute an act of self-dealing as technically defined by the Internal Revenue Code.
Earlier this year (good ol’ 2022), I published a blog about the IRS-issued Guidance on Self-Dealing Rules for Private Foundations. That blog provides the what-is and why-is for self-dealing matters. This Insights blog dives deeper into and hits on a number of tax and governance consequences and considerations for the private foundation that may have engaged in (and that the foundation’s managers may have authorized) one or more self-dealing transactions in a particular tax year.
Self-Dealing Taxes. Each payment involved in a transaction that constitutes a self-dealing transaction may be treated as a separate act of self-dealing. Section 4941 of the Code imposes four separate and distinct taxes on each act of self-dealing.
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